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JEFFREY BROWN: At the dawn of the television age, TV sets were more furniture than functional, small screens with a grainy picture encased in wooden boxes.
And for decades, the model of how TV programming worked stayed the same: Shows came on at an appointed hour, lasted a set amount of time and were broken up with advertising.
AD: Band-Aid plastic strips with new super stick.
JEFFREY BROWN: But today there is something of a revolution underway. This revolution isn’t televised, but digitized. More and more, consumers can now be their own programmers, far surpassing the advent of the video cassette recorder.
Now people need no longer depend on the whims of the television schedule, or movie listings. Content can now be watched on-demand on a variety of devices, from iPods with video, to cellular phones, to computers, and on television sets equipped with digital video recorders, like Tivo, which allow consumers to view programs whenever they wish and to skip commercials.
Television networks are being forced to reevaluate how, where and when they do business. ABC and NBC recently struck deals with Apple to sell iPod users episodes of some of their most popular programs, including “Lost” and “Law and Order” for a $1.99 per download.
Just this week, CBS announced it’s partnering with the Internet portal Yahoo to provide streaming video of two sitcoms. Cable companies like Comcast are offering both on-demand service and digital video recorders to their customers for a fee.
SPOKESMAN: It’s your schedule, take control.
JEFFREY BROWN: And cable networks like HBO have their own on- demand services available to subscribers.
ACTOR: Faces of death? What, was the sound of music already rented?
JEFFREY BROWN: Tony Soprano, whose line of work might make him leery of landlines, can now be found on Cingular wireless video phones. Cingular’s competitor, Verizon Wireless, has rolled out v-cast, which relies on its nationwide, broadband network.
JEFFREY BROWN: John Johnson of Verizon Wireless:
JOHN JOHNSON: I think there’s a general recognition that this a tremendous new medium for programming, most of which already exists and can be re-purposed, shot-selected to work well on the small screen.
JEFFREY BROWN: Verizon has lined up broadcast and cable networks to provide short clips of entertainment shows, sports, music videos and news and weather, all for a flat, monthly fee.
JEFFREY BROWN: And more now on this new world and where it might be headed, from Walt Mossberg of the Wall Street Journal. Since 1991, he’s written the widely-read “Personal Technology” column for the paper. And Joshua Bernoff, a vice president at Forrester Research, a technology and market research firm.
And Welcome to both of you.
Walt Mossberg, starting with you, why is all this happening what is driving it?
WALT MOSSBERG: Well, Jeff, the mass market is fracturing; the TV networks are acutely aware that their viewership is down and that the Internet is providing tremendous competition. At the same time they’ve seen the music companies really lose a lot of sales to illegal distribution of their programming, and there’s some of that going on with TV.
So they’re anxious to try to find a way to participate in this Internet model and to see kind of experimentally what might work and what might not work.
JEFFREY BROWN: Mr. Bernoff, how do you see the changing economics of this industry?
JOSHUA BERNOFF: Well, I think a lot of the broadcast networks and other networks are concerned because of digital video recorders which make it pretty easy to watch TV on your own schedule and to skip commercials whenever you want.
The prudent thing to do here is to find as many new ways to distribute your content as possible especially if you can make some money. And with news that, for example, Apple has now gotten three million downloads of video shows on their video itunes service you begin to see there is money to be made by distributing in ways beyond the normal television distribution.
JEFFREY BROWN: Mr. Bernoff, I hear people use the phrase “time shifting” and we talk about this move towards watching things when you want. What does that mean, time shifting?
JOSHUA BERNOFF: Well, at the center of the whole way television has always worked was the schedule. You had to tune in at 6:00 this see The NewsHour or at 9:00 to see the West Wing.
But the schedule doesn’t fit very well in a world where you can look at anything you want any time on the Internet and make a phone call anywhere you want from anywhere. The schedule is breaking down; time shifting really refers to watching these programs whenever you want.
If you have a digital video record recorder, that means you record them and watch them later with the commercials optional, or you can go to your cable operator and look at them on the video-on-demand service they may have, or now you may look at them on their computer or other devices using downloads.
JEFFREY BROWN: Walt Mossberg, do you want to jump in?
WALT MOSSBERG: Yeah, time shifting is profound. It actually began with the VCR and has continued.
JEFFREY BROWN: Giving us more control to watch what we want to watch.
WALT MOSSBERG: Exactly. But there is another huge thing happening here that I think is less well appreciated and it is called place shifting, which is you don’t have to be in front of a television set.
If you can take that video iPod with you, I have been watching, for instance, episodes of some of my favorite shows that I had missed — I have been watching them on trains, on airplanes, on the treadmill when I work out. You can carry this wherever you want.
And there is another product out this year called the Sling Box, which is a $250 box that you put in your house that allows you to watch all the television coming into your house on a laptop anywhere in the world.
So it’s true, this whole system is breaking down where the network programmers could feed you what they wanted in the order they wanted in the place they wanted you to be. It’s all breaking down.
JEFFREY BROWN: Let me ask you, though, about these new device. There must be a lot of people watching this on their traditional television sets saying to themselves, I’m not going to watch a little — iPod or a cell phone that kind of very small image.
What’s the evidence that there is an audience out there that people will want to use it?
WALT MOSSBERG: Well, as was already mentioned, there have been several million downloads already from Apple in a very short period. And I think we’ll have more extensive numbers announced on that next month.
But I have to say, just as a product reviewer which is my job when I reviewed the video iPod initially, Jeff, I thought it’s pretty good video but I can’t really imagine watching much on it.
And now I have discovered that a one-hour television show which is stripped of its commercials, by the way, there are no commercials in these downloads so it lasts forty-two/forty-three minutes, it’s really pretty acceptable to watch that on a handheld device when you’re bored and traveling or have — working out or have nothing else to do.
And I would also point out that these downloads, which you can keep and watch as many times as you want, can also be played back on your PC, which is a much bigger screen.
JEFFREY BROWN: Mr. Bernoff, what does the research tell you about who is willing to watch what on the small tiny screen?
JOSHUA BERNOFF: Well, we have seen that content is something people are willing to pay for on-line. In fact, we’re estimating there will be about $2 billion in payments in on-line content this year and about 26 percent of the on-line users are actually paying for something, but in general, it hasn’t been video.
I mean we got to put this in perspective. People are out there buying 42-inch flat-panel TVs and that’s where they expect to see television that cost $2 million a year — excuse me, $2 million an episode to produce. And I got to say a 42-inch screen would make for a pretty uncomfortable-sized iPod.
So this is really auxiliary — it is in addition to normal television. It extends the world of television, but it’s really not going to change the world of television broadcasting.
The change there is in watching things at different times on that same TV screen through digital video recorders and video on demand.
JEFFREY BROWN: Mr. Bernoff, several times we talked about now you can shuttle through the ads here. That’s got to have an impact on advertisers.
JOSHUA BERNOFF: That’s absolutely right. There was a press conference recently where the heads of researchers all the major broadcast networks got together to say that you shouldn’t worry about ad shifting if you are an advertiser.
And that’s a sure sign that you should worry about ad shifting if you are an advertiser. These ads as we’re up to now about 10 percent of the population with digital video recorders, these ads, it’s questionable whether they continue to have the same impact.
And in that environment, I think the advertising has to — has to adjust and find new ways to reach the consumer.
JEFFREY BROWN: You mentioned earlier the model of music — what happened in the music industry.
WALT MOSSBERG: Right.
JEFFREY BROWN: You’re seeing some of the same or we are moving in that direction where the control of the content is crucial here.
WALT MOSSBERG: Yeah, I mean, what we found in the music industry was that the product they were selling, which was the CD that cost 15, 16, 17 dollars and had only two songs you wanted in the first place but forced to buy it in this form, is not the product consumers primarily want. They want the song.
Similarly, I think in television what we’re going to see is the networks have no brand that means anything to people, the big broadcast networks.
You stop people on the street, they can’t tell you what is really different between NBC, ABC, or CBS — it is the programs, the individual shows that they have some loyalty to.
JEFFREY BROWN: They know CSI but they might not know what network it’s on.
WALT MOSSBERG: They want Desperate Housewives, and I assure you that if Desperate Housewives moved, lock, stock and barrel with its producers and its writers and its stars and its budget to some other network, it wouldn’t make much difference.
So taking that show and making that the thing you sell will have, I think, increasing appeal to people, and by the way, including the people watching on the 42-inch television because they’re also going to be able, I bet by the end of next year, there will be a way for them to buy these shows for that $1.99 and not watch them on the iPod but watch them on the full blown TV.
JEFFREY BROWN: Well, just to sum up, Mr. Bernoff, is that where we are? In our setup piece we ticked off a few of the recent deals but are we in a moment where everybody is trying to figure out what’s next, how to grab as many consumers as possible but not quite not knowing how to do it?
JOSHUA BERNOFF: Yeah, we are absolutely at that moment. In fact, when the NBC executive who spearheaded these deals was asked: “How much money do you expect to make from this,” he said, “We don’t know this is an experiment.” And it absolutely is.
You’ve got to remember in every one of these shows there a producer, there are stars and networks. And they don’t always share the same interests.
But in an environment where technology changes everything, we saw what it did to the music industry. The television industry is determined that the same thing will not happen to them. So they will continue these experiments.
And within three, four, five years I think it will completely change television distribution. It will change the way they think about things. So experiments now, profound change soon.
JEFFREY BROWN: Walt Mossberg, we just have a few seconds here but you expect this rush of deals to continue?
WALT MOSSBERG: I think we’re going to see an explosion of more of it in 2006 in the second week of January Steve Jobs is, has a big show and he makes a big speech. And I expect some more deals to be done with Apple, but also with other companies.
So yes, the experiment kind of began in the last few months. It’s going to accelerate next year. We’ll find out where it ends up.
JEFFREY BROWN: Okay, Walt Mossberg, Josh Bernoff, thank you both very much.